New corporate-accounting law proves expensive for New Mexico utility

Albuquerque Journal, N.M. --Dec. 27--ALBUQUERQUE, N.M.

Public Service Company of New Mexico has spent more than $1 million complying with a new federal mandate designed to protect customers and shareholders from Enron-style accounting scandals.

And going forward, PNM expects the requirements of the Sarbanes-Oxley Act of 2002 will likely double the annual amount it pays its auditing firm, Deloitte & Touche LLP. The act established a wide array of corporate governance and auditing rules for publicly traded companies. Accounting firms who audit these companies are prohibited from performing other accounting services for them, including bookkeeping and some financial services.

As a result, PNM's internal audit group has spent 18 months testing critical processes, including billing and procurement. The tests are designed to ensure that built-in company control procedures provide the security they are meant to provide, said PNM's senior vice president and chief financial officer, John Loyack. PNM then hired an external audit team, in this case Deloitte & Touche, to review the results of the test and do additional testing where necessary.

Although Deloitte does PNM's regular financial audits, the terms of the contract comply with Sarbanes-Oxley, he said.

Loyack said once Deloitte finishes its review in this month, it will then report to PNM management and the Securities and Exchange Commission.

By law, PNM has to have the audits complete by Friday, the end of the year, and report to its investors by March 16.

If the review shows shortcomings in the existing procedures, PNM must develop a plan to correct the problems and file this with the SEC.

"(But) we don't expect we will have any of this type of issues," Loyack said.

PNM's own audit committee created a policy three years ago that embodied many of the restrictions later contained in Sarbanes-Oxley, he said.

The utility's audit committee reviews the company's auditing contract and makes recommendations to the board of directors.

PNM expects the fee for extra audit work and testing to comply with Sarbanes-Oxley will be about $400,000 a year.

"(That's) about the same as PNM currently pays for its regular financial audit," Loyack said.

PNM considers these costs part of doing business, he said.

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